Locks of Trouble: Reforming with User Fees on the St. Lawrence Seaway
While some may view our nation’s infrastructure situation as hopeless, the federal government has a readily available model it can use to raise funds for new water infrastructure projects. Namely, it could and should implement a user-pays system for assets like locks and dams. This would ensure that the users of the infrastructure — principally commercial vessels — are the ones paying for it, rather than the taxpaying public at large.
It’s been almost two generations since Congress attempted anything along these lines. In 1978, New Mexico Sen. Pete Domenici took on the barge industry, which led to barges finally being required to pay a small share of the capital — but none of the operating and maintenance costs — of the Inland Waterway System. (Domenici’s crusade is memorialized in T.R. Reid’s outstanding book, “Congressional Odyssey: The Saga of a Senate Bill.”) While this precedent still holds for inland rivers, it does not apply to locks in the Great Lakes.
This means that large, high-profile projects — like building a second Poe Lock at the Soo Locks, which link Lake Superior to Lake Huron and the St. Lawrence Seaway — are not covered under the inland waterways funding system. This project was the topic of a recent analysis by the Army Corps of Engineers, which found that building the second lock was originally authorized in 1986 for $227 million. Now the cost of the project is estimated at $922 million, with further inflationary cost-increases expected in the 7-to-10 years needed to build this new lock.
The soon-to-be-passed water infrastructure legislation includes a new authorization, albeit with no requirement of users absorbing the first nickel of any of that cost. Ironically, the new water infrastructure legislation will allow the Environmental Protection Agency to serve as the Corps’ agent to make loans for navigation projects, as was authorized in the 2014 Water Infrastructure and Improvement Act. This raises the question of why the beneficiaries of the proposed second Poe Lock could not take out loans for this project to alleviate the cost of servicing it in lieu of federal taxpayers bearing the cost.
A 2015 Department of Homeland Security (DHS) study found that if the existing Poe Lock were shut down for a period of six months or longer, unemployment would rise by 5.8 percentage points and the U.S. gross domestic product would shrink by $1.1 trillion, or roughly 6 percent. This is because, according to the study, about 50 percent of the iron ore used by the 13 North American integrated steel mills is shipped directly through the Poe Lock at the Soo Locks — the only lock in that location that can handle the 1,000-foot “laker” ships used to haul ore across the Great Lakes. In a recent Government Accountability Office study regarding the St. Lawrence Seaway and the Soo Locks, the Corps “estimated that 85 percent of the tons of cargo travelling through the Soo Locks in 2017 were restricted to using the Poe Lock.”
There can be no dispute that this proposed infrastructure project is important to our nation’s economy. What is in dispute is whether taxpayers should pay for the capital investment, operation and maintenance of these locks, including the proposed new lock. The original 1986 authorization for this project required that 20 percent of the cost be paid for by entities other than the federal government — either by users or via state and local contributions. Amendments to that authorization have eliminated this requirement even though the cost of the project has roughly quadrupled. The last authorization, passed in 2007, states that the project is to be funded entirely by federal taxpayers.
Some oppose requiring user fees or tolls for locks because they claim that doing so would be legally and operationally impossible. But as mentioned, there’s already precedent in this area. Not only do the Inland Waterway System-users pay a tax on fuel to cover 50 percent of the capital costs of their infrastructure on the Inland Waterway System (thanks to Sen. Domenici’s efforts), but the original legislation authorizing the St. Lawrence Seaway required users to pay 100 percent of the costs associated with locks on the Seaway via tolls. Unfortunately, over time, the users went to Congress, and Congress — in a classic act of budget irresponsibility — relieved the users of paying interest on the debt and then scrapped the tolls altogether.
The Corps’ new economic validation study, mentioned above, is not a policy paper and thus does not directly address the question of who should pay for the proposed second Poe Lock. But it does quantify what the iron ore and steel industries would have to pay under various alternatives — such as using rail to transport the ore — if the proposed new lock was not built. If the users of the proposed second Poe Lock contribute any amount less than the cost of these alternatives, they would be better off on net. Using the alternatives as a proxy for what the users should pay is one way to quantify what the beneficiaries of a second Poe Lock should contribute to the capital cost of the project.
Alternatively, the Soo Locks could be made part of the Inland Waterway System, with the same tax on fuel as applies to inland waterway users or with lockage fees imposed, as the Bush II, Obama and Trump administrations have proposed.
Given our nation’s $22 trillion debt, taxpayers should not be underwriting the capital costs of projects like the Poe Lock. Instead, it is long past time for Congress to assign the operations and maintenance costs of locks to the users of those locks.
William B. Newman, Jr. is a policy analyst and consultant in Washington, D.C., who writes on privatization and transportation issues. He is a former executive of Conrail.